Why Is Everyone Freaking Out Over the Proposed Tariff?

Tariffs have been around since 1789 so why all the fuss now? In fact tariffs were the greatest source of income until 1913 when the Income Tax was instituted and tariffs have continued to be a source of income for our federal coffers. Tariffs have been implemented on items such as cotton, linens and china. This isn’t the first time a tariff has been issued on steel. In 2002 President George W. Bush issued a tariff on steel in 2002 (although it was withdrawn sixteen months later). Trump sees steel and aluminum as emblems of industrial power as well as being vital to the country’s national security. Throughout his presidential campaign, Trump promised to crack down on unfair foreign traders and restore the fortunes of American manufacturing.

In June 2016 then Candidate Trump in his speech at Alumisource in Monessen, PA stated:

“A Trump administration will also ensure that we start using American steel for American infrastructure. Andaluminum. Just like the American steel from Pennsylvania that built the Empire State Building, that’s what we’re going to do. It built the Empire State Building. It will be American steel that will fortify America’s crumbling bridges — American steel. It will be American steel… It will be American workers who are hired to do the job. Nobody else — American workers.

We are going to put American steel and aluminum back into the backbone of our country.”

Last week President Trump indicated he will sign into law a 25% tariff on steel and a 10% tariff on aluminum in order that domestic producers can compete fairly in the global market. No other specifics have been given.

PROPONENTS OF THE TARIFFS

“The bottom line is we support trade policies that enable U.S. manufacturers to win and grow jobs in the U.S, and at the same time succeed in global markets.” -International Affairs at the Aerospace Industries Association

According to US Commerce Secretary, Wilbur Ross, the costs of the global tariffs proposed by Trump will be minimal. He explained what the “actual cost” of tariffs on steel and aluminum would be. Ross told CNBC that there is “about 1 ton of steel in a car”. The price of a ton of steel is $700, so 25% on that would be one half of 1% price increase on the typical $35,000 car and using his math, the increase would be $175.00

Ross went further: “In the can of Campbell’s soup there’s about 2.6 cents, 2.6 pennies, worth of steel. So if that goes up by 25% that’s about six-tenths of one cent on the price of a can of Campbell’s soup.” Another example he used was a can of Coca-Cola. He said it had three cents worth of aluminum in it. “So if that goes up by 10% that’s three-tenths of a cent.” These illustrations were to demonstrate that those opposing how tariffs would increase the cost of durable goods were mistaken.

One aluminum company executive said his industry has lost jobs due to unfair competition that’s led to a lack of investment. “We need a level playing field or we are going to lose our manufacturing infrastructure and the national security issues that surround having a vibrant, capable manufacturing sector,” John Lapides, CEO of United Aluminum. The crisis in steel and aluminum trade is driven by the development of massive amounts of excess production capacity, which has led to import dumping by China and a number of other countries Over the past two decades, China and other countries have made huge investments in excess steel and aluminum capacity, and used massive subsidies to drive down prices below cost, driving many producers, especially in the United States (which has the world’s most open markets), out of business. Dozens of U.S. steel mills and aluminum smelters have closed, eliminating more than 100,000 good jobs. To advocates, the tariffs would stem this tide of loss jobs.

OPPONENTS TO THE TARIFF

Opposition was swift to President Trump’s announcement, even those from his own party. “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” said Ryan spokesperson AshLee Strong in a statement on Monday. “The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”

Opponents contend the tariffs are great for US steelmakers — but they’re bad for a large part of the US economy that relies on steel, like construction companies, automakers, and appliance manufacturers. Home builders also immediately slammed the plan. “This announcement by the president could not have come at a worse time,” Randy Noel, chairman of the National Association of Home Builders (NAHB.) “Tariffs hurt consumers and harm housing affordability,” he said.

The construction, automobile and beverage industries have been some of the most vocal critics. Arguing that the tariffs are just a tax and that these tariffs will drive up manufacturing costs and ultimately cost jobs to the American people.

CONCLUSON

The fact is that right now tariffs are a moving target. The president originally announced that he wanted to put new tariffs into effect this week, but a legal review has not been concluded. On Sunday, Peter Navarro, the president’s trade advisor, said the tariff announcement could come this week or the following week at the latest. He also reaffirmed that companies might be able to seek exemptions for certain foreign products they need for their business, a process likely to lead to months of furious lobbying. In addition, some countries and companies, will seek legal assistance both in court and at the World Trade Organization, which requires that members treat all other members equally on trade. A “softened approach” could prevent a backlash.

The consensus regarding tariffs has not been the same simply because we don’t know the specifics of the tariffs. We generally know what the percentages will be on aluminum and steel but we don’t know what, if any, exclusions there will be. Will the tariffs be just against China? Will our North American brethren be included or is President Trump threatening no restrictions on the proposed tariffs in an effort to renegotiate NAFTA?

We do know that some industries are already signaling that higher prices are to come if these tariffs are issued “as is”. Stay tuned.